Nifty 50 (19,231) and Bank Nifty (43,318) snapped two-week losing streak by appreciating last week. While the former gained 1 per cent, the latter moved up 1.3 per cent.
However, last week’s rally has not lifted both indices and their respective futures contract above a key barrier. So, the recovery should be taken with a pinch of salt. Below is the analysis on futures and options (F&O) data.
The November Nifty futures climbed 0.9 per cent last week as it closed at 19,304 on Friday. At the same time, the cumulative Open Interest (OI) of Nifty futures on the NSE rose – it was recorded at 124.6 lakh contracts on November 3 versus 116.6 lakh contracts on October 27. A simultaneous increase in price and OI denotes long build-up.
The option chain shows that the Put Call Ratio (PCR) of the nearest weekly and monthly contracts stood at 0.8 and 1.2 respectively. The ratio did not change much when compared with last week’s value. Therefore, option traders are bearish this week and they expect the index to recover in the subsequent weeks.
The call option strikes between 19,300 and 19,500 have seen considerable selling. Hence, 19,300-19,500 is a good resistance band. On the other hand, 19,200 is a potential support as the put option of this strike has the highest OI.
On the other hand, the price action of Nifty futures indicate that there is a key resistance and support at 19,350 and 19,250 respectively. Traders can wait for the break of the 19,250-19,350 range before taking fresh trades.
The November expiry Bank Nifty futures advanced 1.1 per cent last week as it ended at 43,509 on Friday. When the contract rallied, the cumulative OI of Bank Nifty futures on the NSE increased. It was at 25.6 lakh contracts on November 3 as against 24.9 lakh contracts on October 27. So, there has been long build-up, like in Nifty futures.
That said, the PCR of both the nearest weekly and monthly options stood at 1 on Friday. Thus, the amount of call and put selling are nearly the same. This means the positioning is largely neutral from option traders.
43500- and 44000-strike call options have substantial outstanding OI, denoting that these are potential resistance levels. On the other hand, 43300- and 43000- strike put options have significant OI. So, these are potential support.
The chart of Bank Nifty futures shows that it has a strong hurdle at 43,600. This level should be breached for the contract to turn the trend bullish. Until then, we might see Bank Nifty futures consolidate with a slight bearish bias. Traders can stay away until there is a definite signal of a trend on either side.